The Paytm fiasco
First things first. The Reserve Bank of India (RBI) stated that action was against the payments bank and not the app. The closure of Paytm Payment Bank came as a surprise to many, as it had been making significant strides in the digital banking space but the apex bank directed Paytm Payments Bank to stop onboarding new customers—due to know your customer (KYC) violations.
Launched in 2017 as a subsidiary of popular Indian e-commerce payment system Paytm, it has made rapid strides but now has an uphill task to regain trust of its customers.
Reasons for the closure of the bank include the involvement of Chinese tech giant Alibaba was once a major investor in Paytm, holding a stake of up to 25% at its peak. However, Alibaba has gradually reduced its stake over the years and currently holds less than 1%. Another Chinese company, Ant Group (an affiliate of Alibaba), also invested in Paytm through its subsidiary Ant Financial. However, Ant Financial reduced its stake in Paytm’s parent company One97 Communications to less than 10% in July 2023.
Despite the reduced Chinese ownership, the Indian government is still scrutinizing Paytm’s operations due to its historical links with China. This scrutiny has led to some regulatory hurdles for Paytm, such as the rejection of its application for a payment aggregator license in November 2022.
In the meanwhile, Paytm has emphasized that it is an Indian company with a majority Indian shareholding and that it complies with all Indian laws and regulations. The company has also been working to diversify its investor base and reduce its reliance on Chinese capital.
The closure of Paytm Payment Bank will undoubtedly have an impact on both its customers and the company itself. On the positive side, it will provide an opportunity for the company to focus on its core strengths and focus on its core business of digital payments. However, there are also some potential drawbacks that need to be considered. One of the key advantages of Paytm Payment Bank was its wide network of physical touch points across India. These touch points, known as Paytm Bank kiosks, offered basic banking services such as deposits, withdrawals, and remittances. With the closure of Paytm Payment Bank, these kiosks will no longer be operational, which could leave some customers without easy access to banking services.
To address the challenges posed by the closure of the Paytm Payment Bank, there are several possible solutions that can be considered. One solution is to partner with existing traditional banks or financial institutions to offer banking services through Paytm’s platform. However, it is crucial to recognize that these solutions may not be straightforward. Implementing these solutions may present various challenges, such as regulatory hurdles, compatibility issue with existing systems, and concerns about data privacy. It is crucial for Paytm to carefully assess the challenges and devise strategies to mitigate them.
